THE NEW INDUSTRIAL POLICY OF CYPRUS
by
The official opening of the Investment Bank of Kuban is a major landmark in the co-operation between Russia and Cyprus in economic and business affairs. I would like to take this opportunity, firstly, to convey to you the greetings of Mr. Nicos Rolandis, Minister of Commerce, Industry and Tourism of the Republic of Cyprus, and secondly, to talk to you about some recent decisions of the Government of Cyprus, which, we hope, will lead to the extension of the co-operation between our two nations in new areas, namely the development of high technology industry.
Cyprus is considered to be an example of a country which has had considerable success in its policies for economic development. Today, Cyprus enjoys a high standard of living and a level of development comparable to that of the member states of the European Union. In fact, this high level of development has been a significant factor in the decision of the European Union to include Cyprus in the group of the first six countries with which it has started accession negotiations.
The sector of manufacturing industry has contributed its share to the development of the economy of Cyprus. Its contribution, however, has declined over the last 15 years or so. Traditional manufacturing activities, particularly in the sub sectors of clothing and footwear, have experienced problems of competitiveness in export markets, as a result of the intensifying competition from low cost countries. At the same time, the liberalisation of trade, which has come about as a result of the implementation of the Customs Union Agreement between Cyprus and the European Union as well as the new GATT Agreement of 1995, has transformed the economic environment within which manufacturing industries operate in the home market, which in the past was characterised by very high levels of protection in the form of tariffs and quantitative restrictions on imports.
As a result of these developments, Cyprus manufacturing industry is now undergoing a process of change and adjustment to the new circumstances. Furthermore, the prospect of accession into the European Union in a few years’ time creates the need for additional changes in order to comply with the Union’s requirements for the quality and safety of products, energy saving and protection of the environment.
It is in this context that the Ministry of Commerce, Industry and Tourism has proposed a new industrial policy, which was approved by the Council of Ministers last June. The new policy consists of twelve chapters. The first two concern the development of high technology industry (“high tech” for short) and it is on these two chapters that I shall elaborate during the rest of my talk.
The first chapter concerns the establishment of an incubator for the development of high tech enterprises and the second the creation of a Centre for carrying out applied research and development (R&D for short) in high tech fields. The introduction of these new institutions has been decided in principle by the Council of Ministers and a Technical Committee has been appointed to study the experience of other countries which have introduced them and to make detailed recommendations for Cyprus.
The Technical Committee has by now visited three countries: Greece, Ireland and Israel and is preparing an interim report based on these visits, with recommendations for immediate action in some areas. Although the work is still under way, I can give you a broad outline of how we approach the issue, based on the decision of the Council of Ministers, the work so far carried out by the Technical Committee and the exchange of ideas with interested groups or individual.
Both institutions aim at promoting the development of new products and innovation in the industrial sector and bridging the gap between theoretical research and industry. It is a well known fact that technology today is changing at a very rapid pace and in order to keep up, especially in the high tech field, new research has to be carried out all the time for the development of new products or services. The R&D Centre aims at promoting and sustaining this effort - the objective being to carry out research of an applied nature, which is geared towards developing specific new products or technologies that can be used for producing new products or services, as opposed to basic research, which aims at expanding the frontiers of human knowledge, without necessarily leading to immediate practical applications.
The business incubator goes a step further in the practical application or utilisation of research results or innovative ideas for practical benefits. The concept is based on the realisation that researchers or inventors may be very good in their field, but they do not necessarily make good businessmen. In addition, the initial stages of enterprises in the high tech field involve many risks, which act as a deterrent for external investors. Incubators aim at helping inventors or researchers in the early stages in order to develop and market their innovative ideas and create new productive enterprises based on them.
Incubators provide the following services:
Help in determining whether the idea can be implemented from a technological and commercial point of view
Help in designing the plan for research and development
Scientific and consulting support
Help in finding the appropriate financing
Secretarial and accounting support
Office services (office space, basic furniture, telephone, fax computer network, internet connection, electronic and conventional mail, messenger services)
The length of stay in the incubator is usually limited to a period of two to three years, the idea being that within this period it should be decided whether the commercialisation of the idea has been successful. An extension may be approved, if this is considered justified.
The individual or group applying to enter the incubator has to submit a business plan and to form a limited liability company, the shares of which will belong to the inventor, his associates and (perhaps) the incubator. The inventor or his associate will have to deposit a certain sum and will get seed capital from the Government.
Although the details of the above outline may change, it gives the general picture of what we plan to establish in the next few months.
What is the connection of all this with Russia?
In the new order of things, national frontiers in economic and business activity are becoming less and less important, and great emphasis is placed on international co-operation of all kinds. This applies to high tech activities even more than to other areas. Hence, our policy for developing high tech in Cyprus is based very much on this premise.
Cyprus, being a small island, has always had strong and extensive ties with the outside world. So far, these have been developed primarily in the areas of trade - more recently, tourism and, even more recently, other services. It is, therefore, only natural that we should look for partners outside Cyprus for our venture into the high tech field.
We know that Russia has very highly developed research infrastructure and world class expertise in many scientific and technological areas. We also know that there is great interest in using this knowledge and expertise for practical benefits, in the new free market environment.
It is in this connection that co-operation with Cyprus may be of mutual benefit. The scientific and research infrastructure of Cyprus may be more limited than that of Russia, however, the Cypriots are highly conversant with the mechanisms of the market economy and are excellent businessmen and entrepreneurs. It is no exaggeration to say that entrepreneurship is the cornerstone of the economic success of Cyprus - this ability to identify lucrative opportunities, take calculated risks and exhibit the required flexibility and agility in the constantly changing economic environment.
In the strategy for the incubator, it is explicitly stated that applications involving the participation of non - Cypriot inventors may be considered. This will provide a venue for the development of partnerships or joint ventures between Russians and Cypriots - the Russians providing the scientific and technological expertise and the Cypriots the entrepreneurship.
Other possibilities may of course be explored - such as co-operation between Russian and Cypriot scientists in a research project, which may lead to marketable result. Flexibility is the key word here - in exploring many different ways of making use of the resources that are available in each country.
The R&D infrastructure in Cyprus, although limited, has been improved considerably in the last few years and further improvement is expected in the near future. The University of Cyprus was established seven years ago and is staffed with very highly qualified academics, most of whom had successful careers in Universities in other countries before joining the Cyprus University. The promotion of scientific research is one of the major objectives of the University. The fields of research include information technology, environment, biotechnology, energy, physics and chemistry.
The Cyprus Institute of Neurology and Genetics was also established a few years ago and carries out advanced research into disorders of muscular and neural systems. Research is carried out in various government institutes and departments, such as the Agricultural Research Institute, the State General Laboratory, The Geological Survey Department, the Higher Technical Institute and the Applied Energy Centre, all of which are staffed with highly qualified professionals.
Research projects in the University and the other institutions are very often carried out in co-operation with Universities or research institutes in other countries.
A Research Promotion Foundation has been set up which co-ordinates reasearch activities in Cyprus and administers a grant scheme for research programmes. The Institute of Technology is a non-profit institution established jointly by the Government, the Cyprus Chamber of Commerce and Industry and the Employers and Industrialists Federation in order to promote the technological upgrading of the manufacturing sector.
Recently there have been additional improvements in the R&D environment. As from this year, Cyprus participates fully in the European Union’s Fifth Framework Programme for Research and Technological Development - hence, researchers, companies and organisations based in Cyprus may take advantage of the grants of the Programme, in co-operation with companies or organisations in other European countries. Cyprus also participates as a full member in the the European COST co-operation network.
With respect to Patent protection, our legal framework has been harmonised with the European Union, giving the inventor the possibility of protection for his invention.
It is worth mentioning that although our University is very young, the percentage of Cypriots with third level education has traditionally been very high. Many highly qualified Cypriots can be found in Universities or high tech enterprises all over the world and particularly in the United States and Britain. There seems to be serious interest in this group of people for assisting Cyprus develop and implement its high tech policy successfully, a factor which we also plan to make the best use of.
Another objective of government policy is to attract foreign investment. Therefore, the new industrial policy provides for the establishment of a foreign investors service centre (so – called “one –stop shop”). This will offer advice to foreign investors and provide assistance in the application procedures and the securing of the required permits, as well as help with any problems they may face.
In the last year, while the ideas for a high tech policy have been studied and developed, we have been in close contact with the Ambassador of the Russian Federation in Cyprus Mr Georgy Mouradov, who is a very ardent supporter of the ideas outlined above. We plan to hold a special seminar in Moscow, provisionally set for the beginning of February of the new year, for discussing these ideas with interested persons or organisations in Russia. By then our plans should be more definite and we hope that we shall be able to accept the first applications for the incubator soon after.